Essilor Japan punt would come with blurry vision
28/08/2025 09:50
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. By Karen Kwok LONDON, Aug 28 (Reuters Breakingviews) - EssilorLuxottica ESLX.PA is boldly looking towards the future. Its vision, however, seems a little out of focus. The $140-billion maker of Ray-Ban and Oakley glasses would like to more than double its stake in lens-manufacturing partner Nikon 7731.T to as much as 20%, Bloomberg reported on Tuesday, sending the $4 billion Japanese group's shares up a fifth the following day. Such a move has an inkling of strategic foresight but a fuzzy financial investment case. Nikon is best known for digital cameras, but makes a range of other products including semiconductor kit and optical lenses. The Japanese group recently slashed its sales and operating profit forecasts for the fiscal year ending in March 2026. It has suffered from weak demand and a strong yen, and seems to be struggling to invest in new technologies. That means backing from a giant lens customer like Essilor, run by Francesco Milleri, may be welcome. Since taking a 5% stake last October, the company whose largest shareholder is Italy's wealthy Del Vecchio family has hiked its holding to 9%. Essilor is now seeking regulatory approval to increase it even further. Options include offering financial support, potentially through a capital injection or rights issue, a person familiar with the matter told Breakingviews. A full takeover is probably off the table, given aversion to inbound M&A in Japan. Some of Nikon's technology may also be politically sensitive, particularly the bits that relate to lithography - the business of printing circuits onto silicon chips. Look hard and it's possible to find the angle for Milleri, whose company was riven by board infighting shortly after the Franco-Italian merger that created the group. Essilor has a smart-glasses partnership with Mark Zuckerberg's Meta Platforms META.O. Sales of Ray-Ban Meta frames more than tripled year-on-year in the most recent financial quarter. Yet margins remain murky. The glasses are expensive to make, and Meta likely takes a healthy cut, Bernstein analysts reckon. One possible theory of the Nikon interest is that tighter control over the lens supply chain could help reduce costs, making smart glasses more profitable. Still, that may be a stretch. Owning a minority stake would not give Milleri significant sway over Nikon. And the valuation is hardly cheap: the Japanese group trades at 18 times 12-month forward earnings, LSEG data shows, compared with less than 16 times for the TOPIX Index .TOPX. Essilor may also be interested in Nikon's semiconductor-kit division. Given smart glasses are extremely thin and lightweight, new smaller chips may be required to power them over time, potentially inducing Essilor to design its own silicon and sensors. Nikon has relevant expertise, but advanced lithography machines are just one part of a giant silicon supply chain. If Milleri goes ahead with the possible Japanese foray, his investors may end up squinting to find the returns in the dark. Follow Karen Kwok on LinkedIn and X. CONTEXT NEWS Nikon's shares surged 21% on August 27, following a Bloomberg report stating that EssilorLuxottica was exploring a potential deal to increase its stake in the Japanese optical equipment manufacturer. The Franco-Italian company is considering a move to boost its Nikon stake to around 20%, Bloomberg reported citing people familiar with the matter. Nikon's shares have struggled over the past year https://www.reuters.com/graphics/BRV-BRV/gkplaqbmnvb/chart.png (Editing by Liam Proud; Production by Streisand Neto) ((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))